Research firm, Fitch Solutions, anticipates Egypt's current account deficit will shrink from 6.8% of GDP in the previous fiscal year to 4.8% in the current fiscal year, primarily driven by a significant recovery in remittances from Egyptians working abroad.
However, the improvement is expected to mask a widening trade deficit and declining Suez Canal revenues.
Fitch Solutions projects further narrowing of the deficit to 3.8% by the 2025-2026 fiscal year as canal revenues recover, in line with their forecast that conflicts in the Levant and disruptions in the Red Sea will be resolved by then.
The report highlights that continued growth in remittances will play a key role in reducing the deficit in the upcoming fiscal year, albeit at a more modest rate compared to 2024-2025. Over the next two years, Egypt is expected to repay around $15 billion annually in debt, financed through a combination of debt issuance and foreign direct investment.
However, Fitch cautioned that risks remain skewed toward a widening deficit if non-oil exports underperform or import costs rise faster than anticipated.
Fitch Solutions noted that declining foreign direct investment could pressure foreign reserves, particularly as portfolio investments—accounting for approximately 80% of reserves—remain an unreliable funding source.
The firm estimates remittances will reach $28.7 billion in the current fiscal year, up from $21.9 billion in the previous year, citing an increase from $5 billion in Q3 2023-2024 to $7.5 billion in Q4, the highest level since Q4 2021-2022.
Looking ahead, remittance inflows are projected to rise further as Gulf Cooperation Council economies, hosting a significant portion of Egyptian workers, rebound from 1.4% growth in 2024 to 4.2% in 2025.
The trade deficit is expected to widen slightly from $39.6 billion in 2023-2024 to $40.2 billion this fiscal year. Non-oil exports are set to benefit from improved competitiveness and a recovery in manufacturing after several quarters of contraction. Balance of payments data for Q4 2023-2024 already shows an increase in exports, driven by non-oil sectors.
Nonetheless, rising imports could offset export gains, with higher oil imports due to low domestic production and increased non-oil imports following the removal of restrictions.
Fitch Solutions predicts a limited rise in imports, capped at 5%, as falling energy prices and weak domestic demand restrain growth. Exports, however, are expected to grow by 9%.
